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Belief Formation: An Experiment With Outside Observers

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Author Info

  • Kyle Hyndman

    () (SMU)

  • Wolf Ehrblatt

    () (NYU)

  • Erkut Ozbay

    () (Maryland)

  • Andrew Schotter

    () (NYU)

Abstract

In this paper we investigate the necessary ingredients for an accurate model of belief formation. Using experimental data from a previous experiment, we bring in a new group of subjects whose job it is to predict the action choices of the subjects from the previous experiment. While the rules we consider are all, strictly speaking, adaptive (being based on past observables), some of the variables we uncover represent fairly sophisticated behaviour. Going from less to more sophisticated, we find that the following are important components of the belief formation process: the history of play, payoffs (whether real or ``imagined" in the sense of Camerer and Ho (1999)) of the player whose actions our subjects are predicting and the payoffs of the other player. The paper also documents the presence of subject-specific heterogeneity in both initial beliefs and, to varying degrees, almost all of the variables found to influence beliefs.

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File URL: ftp://ftp1.economics.smu.edu/WorkingPapers/2008/Hyndman/observers.pdf
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Bibliographic Info

Paper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0802.

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Date of creation: Apr 2008
Date of revision:
Handle: RePEc:smu:ecowpa:0802

Contact details of provider:
Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Phone: 214-768-2715
Fax: 214-768-1821
Web page: http://www.smu.edu/economics

Related research

Keywords: Game Theory; Belief Formation; Learning.;

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References

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  1. Stahl Dale O. & Wilson Paul W., 1995. "On Players' Models of Other Players: Theory and Experimental Evidence," Games and Economic Behavior, Elsevier, vol. 10(1), pages 218-254, July.
  2. Costa-Gomes, Miguel & Crawford, Vincent P & Broseta, Bruno, 2001. "Cognition and Behavior in Normal-Form Games: An Experimental Study," Econometrica, Econometric Society, vol. 69(5), pages 1193-1235, September.
  3. Huck, Steffen & Weizsacker, Georg, 2002. "Do players correctly estimate what others do? : Evidence of conservatism in beliefs," Journal of Economic Behavior & Organization, Elsevier, vol. 47(1), pages 71-85, January.
  4. Palfrey, Thomas R. & Wang, Stephanie W., 2009. "On eliciting beliefs in strategic games," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 98-109, August.
  5. Yaw Nyarko & Andrew Schotter, 2002. "An Experimental Study of Belief Learning Using Elicited Beliefs," Econometrica, Econometric Society, vol. 70(3), pages 971-1005, May.
  6. Wolf Ze'ev Ehrblatt & Kyle Hyndman & Erkut Y. ÄOzbay & Andrew Schotter, 2006. "Convergence: An Experimental Study," Levine's Working Paper Archive 122247000000001148, David K. Levine.
  7. Cheung, Yin-Wong & Friedman, Daniel, 1997. "Individual Learning in Normal Form Games: Some Laboratory Results," Games and Economic Behavior, Elsevier, vol. 19(1), pages 46-76, April.
  8. Miguel A. Costa-Gomes & Georg Weizs�Cker, 2008. "Stated Beliefs and Play in Normal-Form Games," Review of Economic Studies, Wiley Blackwell, vol. 75(3), pages 729-762, 07.
  9. Offerman, Theo & Sonnemans, Joep & Schram, Arthur, 1996. "Value Orientations, Expectations and Voluntary Contributions in Public Goods," Economic Journal, Royal Economic Society, vol. 106(437), pages 817-45, July.
  10. Camerer, Colin F. & Ho, Teck-Hua & Chong, Juin-Kuan, 2002. "Sophisticated Experience-Weighted Attraction Learning and Strategic Teaching in Repeated Games," Journal of Economic Theory, Elsevier, vol. 104(1), pages 137-188, May.
  11. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
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Cited by:
  1. Ozan Aksoy & Jeroen Weesie, 2013. "Hierarchical Bayesian Analysis of Biased Beliefs and Distributional Other-Regarding Preferences," Games, MDPI, Open Access Journal, vol. 4(1), pages 66-88, February.

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